I don't know if this is an "investment" or a "tax" topic, so feel free to move it around if I done goofed up.
OUR SITUATION:
My wife and I--38 and 37, 4 kids from age 9 on down--are moderately Mustachian, headed to RE from my generic UMC job (combined with my wife downshifting her small business) *on our own saved money* in our early 40s.
Our own Stache is held in my 401k (stock and bond index funds), Vanguard Roth IRAs for each of us (some stock index funds, some REITs), and an unprotected Vanguard account (just int'l stock index funds for now). I rebalance a couple times a year across all the accounts to hit our allocations of domestic stock, VTIAX (int'l stock), VGSLX (REITs) and bonds. Between my wife and me, I'm the financial mind.
THE INHERITANCE:
My Jewish-Amish great-grandfather, let's call him Benny, was a stone cold badass (who could star in a very entertaining MMM FI profile in his own right) and the only one in our family who's ever made serious coin. My mom inherited a decent chunk from him, which she and my dad have expanded through . . . okay (by Boglehead standards, still better than most people) investment decisions and piling on some more savings of their own. As far as I know, they never spent a dime from that inheritance until they retired, at which point they tapped some dividends for a couple of nice vacations. I grew up thinking "Benny's money"--no one ever called it our money--added up to high six figures or so, which, when my parents died many decades hence, would be taxed hard by the feds (inheritance tax was still 38% in the lowest bracket then, and cut in at $600k or something) plus the State of Oregon, then split down the middle with my brother--in other words, a real windfall someday, but small/distant enough that I would still have to sweat for scholarships, get a good job right out of the gate, save early and often, yadda yadda. It turns out that this was a ruse to spur us to success and achievement in life, and Benny's money [appreciated and supplemented] is really more in the multiple million dollar range.
Basically, I'm wondering how, tactically and strategically, I'm going to manage this fortune that will drop on us in a decade or three, preferably with minimal headaches.
And actually, it's already started dropping: during the past several years, my parents have aperiodically gifted, within the gift limits, securities that I would probably not buy myself (actively managed mutual funds, appreciated stock for companies like General Mills). They're either spending down, though I believe they're well under the federal estate tax limit, or just cheerfully tossing off money. In terms of scale, I expect this will add up to more like a modest college fund for each grandkid than a fatty trust fund. They seem to be gifting equal amounts to my four kids and my brother's two, so 2/3 of these pre-death gifts are going toward my side of the family. These are UTMA transfers, and I'm the custodian on my kids' accounts, held at the same paper-and-pencil brokerage that Benny started doing business with in 1948, let's call them Schlomo's. The guy I deal with for those accounts is the grandson of Benny's long-deceased broker. My brother and his wife, who are not by my family's standards terribly interested in matters financial, have some money of their own parked with Schlomo III, but I'm more of a Vanguard/index fund DIYer.
Now mom and dad are now starting to gift to us adults as well, and I have to figure out what to do next. I haven't co-mingled the gifts with our Stache, and I don't believe I want to. Maybe I can keep it at Schlomo's, or in a separate Vanguard account.
MY WISHES:
My parents haven't spent Benny's money, and I don't want to either. I'm 100% certain that when we FIRE, I want to do it on the back of our savings only, and not as a kept man; my wife is 95% on this point, but we're talking about it. Moreover, I'm a man of Mustachian tastes, and I truly don't have plans to spend that kind of extra income. I also don't want our kids to grow up spoiled or without the drive to grab life by the balls. I'm slightly interested in passing Benny's money straight down to their kids, only allowing my or the next generation to tap it in case of emergency. But I'm also wary of dictating too to our descendants from beyond the grave in too much detail.
Goals:
1) Protect Benny's money from lawsuits,
2) Protect from spendthrift/gambler kids or their spouses, within reasonable limits (certain other relatives got the same size pot as my mom and basically blew it through bad investments, including gold, derivatives they didn't understand and recording studio time for a band that did NOT make it big)
3) Do some good with some of the money, though more like the interest than the principal. Lots more thinking yet to do in this area. I'm vaguely considering a donor-advised fund, but I don't know much about those.
So, THE QUESTIONS I believe I'm facing, in order of urgency:
1. What should I do with the current gifts destined for us?
2. What should I do with the kids' UTMA funds? Possibly just leave them where they are, though the investments don't reflect my Bogleheady ideas.
3. What groundwork should I lay for the overall brick when it lands?
The UTMA money has a sort of time horizon: our kids' early adulthood, 10-18 years from now. There is no time horizon for the rest of the money, since I don't intend to use it. Strategically, how should I invest the longer-horizon pieces of Benny's money? Same allocations/index funds I'm using with our own savings? That would imply a *lot* of transaction churn and realizing capital gains. I feel like I should have more ideas about investing with a permanent horizon endowment-style, but David Swensen hasn't fared as well lately as he did out of the gate.
Not knowing much about trusts, I suppose I'll have to at least look into all that. I'm not privy to the full details, but Benny set up slow moving trusts when he died that kept his grandkids from having full control over their inheritances until their early thirties. His second wife (not my great-grandmother, who died years before he did) and kids got (I think?) smaller bequests that they could touch right away.
I'm somewhat intrigued by
what the Action Econ guy says about parents/grandparents basically gifting to kids during their lifetimes and turning a modest nest egg over to them in early adulthood. However, it seems that my parents are going to end up funding something similar, so we might not get in on that.